A Parent May Not Divert Income, in Order to Decrease Existing Child Support Obligations

Father, Von Kirk, and mother, Jane Kirk shared joint legal child custody of four children. Mother had sole child physical custody. At the time of the initial divorce court order, father was the principal owner and controlling shareholder of KTK, Inc., which operated a car dealership. Von Kirk owed KTK $572,000, based on fees he allegedly used for personal expenses. KTK subsequently came under new ownership and father’s divorce lawyer later moved to modify his child support obligations. Father entered into an employment contract with the new owners of KTK, where he received a salary of $5,000 per month and a debt cancellation of $4,450 per month, amounting to a total monthly income of $9,450. In response to father’s divorce attorney’s modification request, the divorce court terminated father’s obligation to pay spousal support and reduced the child support order to $1,200 per month. In doing so the divorce court determined that $4,450, which father received in the form of debt forgiveness by employer, would not be considered as a part of father’s gross income. Mother’s divorce lawyer appealed the divorce court’s decision.

On appeal, the Court determined that the divorce court had abused its discretion by deciding not to count $4,450 of debt forgiveness as father’s income. The Court determined that the divorce court was free to take into consideration all relevant facts and circumstances in determining the appropriate child support order. However, father’s decision to enter into an employment agreement amounted to a contractual shift of $4,450 of disposable income, to payment of a third party debt. Further, the Court determined that father had entered into this volitional contract, after the initial order of child support and thus the new contract undermined his ability to meet his already-existing child support obligations. The Court found that the employment agreement was a voluntary diversion of income to pay debt, which caused the father to be unable to meet his pre-existing support orders. Ultimately, the Court held father’s diversion of income for a different purpose was not permitted under the law.  Thus, the Court disagreed with father’s divorce lawyer’s position and did not modify father’s support order because he entered into a contractual agreement that shifted his income. Therefore, the divorce court’s order modifying the initial support order was reversed.

In re Marriage of Kirk (1990) 217 Cal. App. 3d 597